REVENUE RULE 90-2

1990-1 C.B. 169, 1990-4 I.R.B. 12.

Internal Revenue Service
Revenue Ruling

APPLICABLE MARITAL DEDUCTION IN DETERMINING 'SECOND LIMITATION' ON CREDIT FOR TAX ON PRIOR TRANSFERS

Published: January 22, 1990

Section 2013. - Credit for Tax on Prior Transfers, 26 CFR 20.2013-3: 'Second limitation'.

Applicable marital deduction in determining 'second limitation' on credit for tax on prior transfers. In determining the 'second limitation' on the credit for tax on prior transfers for a decedent who died after 1981, the applicable marital deduction is the value of the property passing to the surviving spouse without any apportionate reduction and without limitation as to amount. Rev. Ruls. 60-161, 76-311, and 80-210 are obsolete for decedent dying after 1981.

ISSUE

In determining the 'second limitation' on the credit for tax on prior transfers under section 2013(c)(1) of the Internal Revenue Code for a decedent who died after 1981, what is the applicable marital deduction used in computing the estate tax on the reduced gross estate, under the circumstances described below?

FACTS

D died in July 1986, survived by a spouse, S. The value of D's gross estate is $3,300,000 and deductions for debts and expenses in the amount of $200,000 are allowable. D bequeathed to S the residue of the estate, an amount equal to $2,400,000. A marital deduction is allowable for that amount. The estate claimed a credit for tax on prior transfers under section 2013 of the Code based on a transfer of $500,000 that D received from the estate of D's parent, who died in 1984.

LAW AND ANALYSIS

Section 2013 of the Code provides, in general, that a transferee's estate is allowed a credit for estate tax paid with respect to property transferred to the transferee from a transferor who died within ten years before, or within two years after, the transferee's death ('the transferred property'). Under section 2013, the amount of the credit that may be taken by the transferee's estate with respect to the transferred property is subject to two limitations. The 'first limitation' is the estate tax attributable to the transferred property in the estate of the transferor. The 'second limitation,' which is under consideration here, is the estate tax attributable to the transferred property in the estate of the transferee decedent.

The 'second limitation,' as prescribed in section 2013(c)(1) of the Code and section 20.2013-3 of the regulations, provides that the credit shall not exceed the amount by which (A) the transferee's estate tax, computed after the allowance of all credits except the credit for tax on prior transfers, exceeds (B) such tax computed by excluding from the transferee's gross estate the value of the transferred property.

Section 2056 of the Code provides, with certain limitations, a deduction from the value of the gross estate for the value of the property that passes from the decedent to the surviving spouse.

For decedents dying before 1977, former section 2056(c) of the Code provided that the amount of the marital deduction was limited to one-half of the value of the adjusted gross estate. The Tax Reform Act of 1976, Pub. L. 94-455, 1976- 3 C.B. (Vol. 1), 330, amended section 2056(c) for estates of decedents dying after December 31, 1976, to provide generally that the marital deduction shall not exceed the greater of $250,000 or one-half of the adjusted gross estate.

The Economic Recovery Tax Act of 1981, Pub. L. 97-34, 1981-2 C.B. 256, 342, repealed section 2056(c) of the Code for estates of decedents dying after December 31, 1981. Accordingly, for decedents dying after December 31, 1981, the amount of the marital deduction is unlimited.

Rev. Rul. 60-161, 1960-1 C.B. 367, provides (for estates of decedents dying before January 1, 1977) that in computing the estate tax under section 2013(c)(1)(B) on the gross estate as reduced by the value of the transferred property ('reduced gross estate'), the applicable marital deduction is the value of the property passing to the surviving spouse without any proportionate adjustment to reflect the reduction in the gross estate attributable to the transferred property, but is not to exceed one-half of the adjusted gross estate as reduced by the value of the transferred property ('reduced adjusted gross estate'). See also Rev. Rul. 76-311, 1976-2 C.B. 261, which explains how the marital deduction under section 2013(c)(1)(B) is determined for estates that include community property.

Rev. Rul. 80-210, 1980-2 C.B. 251, provides that, in determining the credit for tax on prior transfers under the 'second limitation' of section 2013(c)(1) of the Code, for purposes of computing the tax on the reduced gross estate of a decedent who died after 1976 (and before 1982), the applicable marital deduction is the value of the property actually passing to the surviving spouse, but not to exceed the greater of $250,000 or one-half of the reduced adjusted gross estate.

With the repeal of section 2056(c) for estates of decedents dying after December 31, 1981, section 2056 no longer contains a limitation on the amount of the marital deduction that would be applicable in determining the value of the reduced taxable estate under section 2013(c)(1)(B).

Accordingly, in computing the estate tax on the reduced gross estate in accordance with section 2013(c)(1)(B) of the Code, for estates of transferees dying after December 31, 1981, the applicable marital deduction is the value of the property passing to the surviving spouse without any proportionate reduction and without limitation as to amount.

HOLDING

In determining the 'second limitation' on the credit for tax on prior transfers under section 2013(c)(1) of the Code, the marital deduction allowable in computing the estate tax under section 2013(c)(1)(B) under the facts of this ruling is $2,400,000.

EFFECT ON OTHER DOCUMENTS

The limitations in the marital deduction for purposes of the computation under section 2013(c)(1)(B) set forth in Rev. Rul. 60- 161, Rev. Rul. 76-311, and Rev. Rul. 80-210 are declared obsolete for decedents dying after 1981.

DRAFTING INFORMATION

The principal author of this revenue ruling is Susan Hurwitz of the Office of Assistant Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue ruling, contact Ms. Hurwitz on (202) 566- 5983 (not a toll-free call).

Rev. Rul. 90-2, 1990-1 C.B. 169, 1990-4 I.R.B. 12.